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Gold turns positive after weak U.S. data; Fed outcome ahead

CommoditiesJul 27, 2016 08:49AM ET
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© Reuters. Gold turns positive after weak U.S. data

Investing.com - Gold prices turned positive in North American trade on Wednesday, after data showed U.S. orders for long lasting manufactured goods fell more than forecast in June, reflecting ongoing struggles by American manufacturers to drum up sales.

Gold for December delivery on the Comex division of the New York Mercantile Exchange inched up $1.10, or 0.09%, to trade at $1,329.40 a troy ounce by 12:48GMT, or 8:48AM ET.

Orders for durable or long-lasting goods made in the U.S. sank 4% in June, marking the biggest drop in almost two years and compared to economists' expectations for a decline of 1.1%.

Core durable goods orders, which exclude volatile transportation items, unexpectedly fell 0.5% last month, disappointing forecasts for a 0.3% gain.

Shipments of core capital goods, a category used to help determine quarterly economic growth, fell 0.4% to mark the second decline in a row.

Market players now looked ahead to the outcome of the Federal Reserve’s policy meeting later in the day for fresh guidance on the future path of U.S. interest rates.

While the U.S. central bank is not expected to take action on interest rates, investors will scrutinize wording in its policy statement for fresh hints on the timing of interest rate hikes over the next several months.

A recent string of better than expected U.S. data reignited speculation that the Fed will raise interest rates before the end of the year. Fed funds futures are currently pricing in a 20% chance of a rate hike by September. December odds were at 52%, compared with less than 10% at the start of this month.

Gold is sensitive to moves in U.S. rates, as a rise would lift the opportunity cost of holding non-yielding assets such as bullion.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 97.27 early on Wednesday, not far from a more than four-month high of 97.59 hit on Monday, boosted by the diverging monetary policy outlook between the Fed and other global central banks.

A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

The yellow metal remained supported amid speculation central banks in Europe and Asia will step up monetary stimulus in the next few months to counteract the negative economic shock from the Brexit vote.

Gold is up almost 25% for the year to date, boosted by concerns over global growth and expectations of monetary stimulus. Expectations of monetary stimulus tend to benefit gold, as the metal is seen as a safe store of value and inflation hedge.

Prices surged to a more than two-year high of $1,377.50 earlier in July, as concerns surrounding global growth in wake of Britain’s vote to exit the European Union sent investors flooding into safe haven assets.

Gold turns positive after weak U.S. data; Fed outcome ahead

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